Expert Corporate Tax Consultancy in the UAE

Corporate Tax in the UAE is a tax levied on the net profits (taxable income) of businesses. This taxation system was introduced to diversify the UAE’s revenue base and came into effect on June 1, 2023. By January 1, 2024, most companies are expected to be fully taxable under this regime.

Background of Corporate Tax in the UAE

The UAE has long been an attractive destination for businesses due to its stable political environment, strategic location, and world-class business infrastructure. Previously, the UAE was known for its 0% corporate tax rate, but with the country aiming to diversify its economy away from oil, the government introduced corporate tax to broaden revenue sources.

Difference Between Corporate Tax and VAT

Corporate tax and Value Added Tax (VAT) are often confused but are very different. VAT is a consumption tax added to the sale of goods and services, paid by the customer at the time of purchase. Corporate tax, however, is a tax on a business’s profits. VAT only applies when a company reaches a specific threshold, but corporate tax applies to every company based on their profit levels.

Who Is Subject to Corporate Tax?

Corporate tax applies to almost all businesses operating in the UAE, including:

• UAE-based corporations or businesses with significant management in the UAE.
• Individuals engaged in business activities within the UAE.
• Foreign legal entities with a permanent establishment in the UAE.

There are a few specific exemptions, but in general, businesses operating in the UAE from June 1, 2023, onward will need to comply.

Corporate Tax Rates

The tax rates are structured as follows:

• Businesses with net profits up to AED 375,000: 0% tax rate.
• Businesses with net profits above AED 375,000: 9% tax rate.
• Large multinational companies with global revenues over EUR 750 million (approx. AED 3.15 billion): 15% tax rate, aligning with international tax frameworks like the OECD’s Base Erosion and Profit Shifting (BEPS) Project.

Corporate Tax Registration

To register, businesses must apply through the Federal Tax Authority (FTA) website, submitting documents such as their trade license, Emirates ID, passport, financial records, and corporate structure. After submitting the required information, companies will receive a Tax Registration Number (TRN) within 20 days.

Exemptions from Corporate Tax

Some entities are exempt from corporate tax, including:

• Government entities.
• Businesses engaged in the extraction of natural resources (as they are taxed at the Emirate level).
• Charitable organizations and public benefit institutions.
• Real estate and regulated investment funds.
• Public or private pension and social security funds.

Free Zone Persons and Corporate Tax

Businesses operating in Free Zones can benefit from a 0% corporate tax rate if they:

1. Generate “Qualifying Income.”
2. Maintain sufficient economic substance in the Free Zone.
3. Avoid opting for the standard tax rate.

Qualifying income typically includes revenue from transactions with other Free Zone entities or activities like manufacturing, processing, or logistics. However, any non-qualifying income must remain below 5% of the total revenue or AED 5 million.

Corporate Tax for Freelancers

Freelancers, once their annual revenue reaches AED 1 million, are also subject to corporate tax. Freelancers need a professional license to operate, and Dubai and the UAE are popular destinations for freelancers due to their business-friendly environment.

Corporate Tax for Groups

Corporate tax allows businesses to form a “Tax Group” if certain conditions are met. The group can then be treated as a single entity for tax purposes, with the parent company holding at least 95% of the shares, voting rights, and profits of its subsidiaries. Exempt entities and Free Zone entities cannot form part of a Tax Group.

Deductible Expenses

Businesses can deduct certain expenses related to generating taxable revenue, including:

1. Charitable donations.
2. Financing costs and interest, provided they do not exceed specific thresholds.
3. Reasonable remuneration for directors or owners.
4. Losses carried forward to future tax periods.
5. 50% of entertainment expenses.
6. Depreciation and amortization of long-term assets.

Additional Exemptions

Additional income exemptions include:

1. Dividends received from UAE-incorporated or foreign businesses.
2. Capital gains from selling shares in a subsidiary.
3. Foreign exchange gains/losses.

Corporate Tax for Large Multinationals

Large multinational companies with global revenues exceeding EUR 750 million must pay a minimum of 15% tax under the OECD’s global tax framework, ensuring that these enterprises contribute a fair share of taxes.

In summary, corporate tax in the UAE represents a significant shift in the country’s business landscape. While it introduces new obligations, the rates are still highly competitive compared to other countries. Understanding the tax tiers, who is subject to corporate tax, and the available exemptions will be crucial for businesses to comply with the new regulations.

FAQ: Corporate Tax in the UAE

1. What is Corporate Tax in the UAE?
Corporate Tax is a direct tax imposed on the net profits of businesses operating in the UAE. Starting in June 2023, the standard rate of 9% applies to profits exceeding AED 375,000.

2. Who is required to register for Corporate Tax?
Businesses with taxable profits exceeding AED 375,000 must register for corporate tax. Smaller businesses below this threshold are exempt but may still benefit from voluntary registration.

3. How do I register for Corporate Tax in the UAE?
Registration for corporate tax can be completed online through the Federal Tax Authority (FTA) portal. Our team at Rhodes & Collins can assist you through the entire process, ensuring full compliance.

4. What happens if my business no longer meets the threshold?
If your business’s profits fall below AED 375,000 or it ceases operations, you may be eligible for corporate tax deregistration. We help businesses manage the deregistration process to avoid unnecessary tax obligations.

5. How often do I need to file Corporate Tax returns?
Corporate tax returns are typically filed annually, though the exact deadlines may vary depending on your fiscal year. Our experts ensure your returns are filed on time to avoid penalties.

6. Can I reduce my Corporate Tax liability?
Yes, through effective tax planning, businesses can optimize their tax structure and reduce liabilities. We help identify opportunities for deductions and credits to ensure your tax burden is minimized.